Olivier Custeau, Fiscaliste, B.A.A., M. Fisc., EA

Are you subject to the US exit tax?

American citizen living in Canada  —   —  Share

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If you have renounced your US citizenship or abandoned your green card the US tax authorities (IRS) may attempt to impose expatriation tax (US exit tax), on property you owned immediately before your departure.

You will therefore be considered a covered expatriate and will be subject to US exit tax if your worldwide net worth exceeds $2 million US, your tax payable for the past five years exceeds $171,000 US (in 2020) or if you do not are unable to confirm that you have completed your US income tax returns for the past five years. You also have the option of regularizing your situation if you are not in good standing with your US tax obligations by using temporary programs offered by the IRS, such as the “Streamlined Foreign Offshore Procedure” or the “Relief Procedures for Certain Former Citizens”.

By being treated as a covered expatriate, you will be deemed to have sold most of your assets at fair market value immediately prior to your expatriation, which could result in a significant capital gain to report on your US tax return. Exemptions are available so that the capital gain is canceled, in whole or in part. Assets not covered by the deemed disposition will, depending on their nature, be added to your income when you move abroad or will be subject to a 30% US withholding tax when paid to you. Nevertheless, a choice is possible in order to defer this immigration tax, but this should be done in the manner prescribed by the IRS and sufficient security should be provided.

If you would like more information on this subject, we advise you to make an appointment with one of our tax experts specializing in US tax. He will be able to validate whether you are subject to the US exit tax and verify your eligibility for the available exceptions, if applicable.